UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

|X|   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934 FOR THE QUARTERLY PERIOD ENDED September 30, 2003

|_|   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934 FOR THE TRANSITION PERIOD FROM              TO

                        Commission File Number: 000-32319

                             ESSENTIAL REALITY, INC.


        (Exact name of small business issuer as specified in its charter)

             Nevada                                     33-0851302
(State or Other Jurisdiction of          (I.R.S. Employer Identification Number)
Incorporation or Organization)

                      Change of Address 263 Horton Highway
                            Minneola, New York 11357
                    (Address of Principal Executive Offices)

                      Change of Phone Number (516) 742-3100
                           (Issuer's Telephone Number)

Indicate  by a check  mark  whether  the  registrant  (1) has filed all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

                               |X| Yes   |_| No

    APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
                              PRECEDING FIVE YEARS

Check whether the  registrant  filed all  documents  and reports  required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the  distribution  of
securities under a plan confirmed by a court.

                                  |_| Yes |_| No




                      APPLICABLE ONLY TO CORPORATE ISSUERS:


As of April 21, 2003 there were 18,588,110 shares of the issuer's Common Stock,
par value $.001 per share, issued and outstanding.


      Transitional Small Business Disclosure Format   |_| Yes    |X| No


                                       1
<PAGE>


                         PART I - FINANCIAL INFORMATION

                                                                           Pages

Item 1 - Financial Statements

    Condensed Balance Sheets as of September 30, 2003 (Unaudited)           3

    Condensed Statements of Operations for the three and nine
    months ended September 30, 2003 and 2002 (Unaudited)                    4

    Condensed Statements of Cash Flows for the nine months
    ended September 30, 2003 and 2002 (Unaudited)                         5 - 6

    Notes to Condensed Financial Statements (Unaudited)                   7 - 16


Item 2 - Management's Discussion and Analysis                            17 - 30

                           PART II - OTHER INFORMATION

Item 1 - Legal Proceedings                                               31 - 32

Item 2 - Changes in Securities                                             32

Item 3 - Defaults Upon Senior Securities                                   32

Item 4 - Submission of Matters to a Vote of Security Holders               32

Item 5 - Other Information                                                 32

Item 6 - Exhibits and Reports on Form 8-K                                  33



                                       2
<PAGE>


                 ESSENTIAL REALITY, INC. (FORMERLY JPAL, INC.)

                       CONDENSED BALANCE SHEET (UNAUDITED)
                               September 30, 2003

<TABLE>
<CAPTION>
<S>                                                                       <C>
                               ASSETS

Current assets:
    Accounts receivable                                                   $     12,277
    Inventories, net                                                           241,110
    Other current assets                                                       123,039
                                                                          ------------

           Total current assets                                                376,426

Equipment and improvements, net of accumulated depreciation
    and amortization                                                           287,941

Intangible assets, net of accumulated amortization                             190,072
                                                                          ------------

                                                                          $    854,439
                                                                          ============

                      LIABILITIES AND STOCKHOLDERS DEFICIT
Current Liabilities:
    Book overdraft                                                        $     54,111
    Accounts payable and accrued expenses                                    2,146,937
    Due to related parties                                                     241,763
    Loan payable - unsecured                                                    25,000
    Accrued compensation                                                       228,492
    Secured convertible debenture (net of deferred interest of $20,625)        979,375
    Notes payable (net of deferred interest of $4,375)                       1,893,195
                                                                          ------------
           Total current liabilities                                         5,568,873

Commitments and contingencies                                                       --

Stockholders' deficit:
    Common stock, $0.001 par value; 50,000,000 shares authorized;
        18,588,110 issued and outstanding                                       18,588
    Additional paid-in capital                                              14,691,578
    Deferred compensation expense                                             (937,399)
    Deferred consulting expense                                               (108,000)
    Accumulated deficit                                                    (18,379,201)
                                                                          ------------

           Total stockholders' deficit                                      (4,714,434)
                                                                          ------------

                                                                          $    854,439
                                                                          ============
</TABLE>


See notes to condensed financial statements


                                       3
<PAGE>


                  ESSENTIAL REALITY, INC (FORMERLY JPAL, INC.)

                 CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)


<TABLE>
<CAPTION>
                                                Three Months Ended               Nine Months Ended
                                                  September 30,                   September 30,
                                               2003            2002            2003            2002
                                          ------------    ------------    ------------    ------------
<S>                                       <C>             <C>             <C>             <C>
Revenue                                   $     57,143    $         --    $    157,301    $         --

Cost of revenue                                 32,962              --         156,702              --
                                          ------------    ------------    ------------    ------------

Gross profit                                    24,181              --             599              --

Operating expenses:
    Sales and marketing                        146,046         411,802         501,173       1,028,325
    Product development                         18,358         676,748         477,014       1,557,858
    General and administrative expenses        191,918         681,756         774,405       1,585,146
    Depreciation and amortization               58,778           3,866         174,554          10,696
    Severance compensation (forfeiture)        (90,000)             --         204,511              --
    Stock-based compensation                   196,389         442,657       1,361,937         561,156
                                          ------------    ------------    ------------    ------------

        Total operating expenses               521,489       2,216,829       3,493,594       4,743,181
                                          ------------    ------------    ------------    ------------

Loss from operations                          (497,308)     (2,216,829)     (3,492,995)     (4,743,181)

Other income (expense):
    Interest income                                 --           9,002           1,213          11,853
    Interest expense                          (229,684)       (677,504)     (1,248,043)       (816,390)
    Miscellaneous                              (13,629)             --         (13,654)             --
                                          ------------    ------------    ------------    ------------

        Total other income (expense)          (243,313)       (668,502)     (1,260,484)       (804,537)
                                          ------------    ------------    ------------    ------------

Loss before provision for income taxes        (740,621)     (2,885,331)      (4,75,479)     (5,547,718)

Provision for income taxes                          --              --              --              --
                                          ------------    ------------    ------------    ------------

Net loss                                  $   (740,621)   $ (2,885,331)   $ (4,753,479)   $ (5,547,718)
                                          ============    ============    ============    ============

Net loss per share - basic and diluted    $      (0.04)   $      (0.16)   $      (0.26)   $      (0.31)
                                          ============    ============    ============    ============

Number of weighted average shares -
    basic and diluted                       18,588,110      18,109,309      18,477,118      18,007,478
                                          ============    ============    ============    ============
</TABLE>


See notes to condensed financials statements


                                       4
<PAGE>


                  ESSENTIAL REALITY, INC. (FORMERLY JPAL, INC.)

                      STATEMENTS OF CASH FLOWS (UNAUDITED)

<TABLE>
<CAPTION>
                                                           Nine months ended
                                                              September 30,
                                                      --------------------------
                                                         2003           2002
                                                      -----------    -----------
<S>                                                   <C>            <C>
Cash flows used for operating activities:
 Net loss                                             $(4,753,479)   $(5,547,718)
                                                      -----------    -----------

 Adjustments to reconcile net loss to net cash
  used for operating activities:
  Depreciation and amortization                           174,554         10,696
  Contract termination                                    110,667             --
  Amortization of deferred interest                       189,269        178,973
  Non-cash compensation                                 1,380,875        561,156
  Imputed interest on conversion of debt instrument       884,954        482,608
  Change in inventory reserve                             120,301
 Changes in assets and liabilities:
  (Increase) decrease in assets:
   Restricted cash                                             --     (2,000,000)
   Accounts receivable                                     26,402             --
   Inventories                                            (56,882)       (50,870)
   Deferred financing cost                                     --        217,755
   Other assets                                            58,050         22,500
   Other current assets                                    (5,045)      (270,417)
  Increase (decrease) in liabilities:
   Accounts payable and accrued expenses                  877,091        260,900
   Accrued compensation                                        --        (21,111)
                                                      -----------    -----------
   Total adjustments                                    3,760,236       (607,810)
                                                      -----------    -----------
   Net cash used for operating activities                (993,243)    (6,155,528)
                                                      -----------    -----------

Cash flows used for investing activities:
 Payments for purchases of equipment                      (13,642)       (73,490)
                                                      -----------    -----------
   Net cash used for investing activities                 (13,642)       (73,490)
                                                      -----------    -----------

Cash flows provided by financing activities:
 Book overdraft                                            54,111             --
 Proceeds from sale of securities                         100,000             --
 Net proceeds from issuance of members capital                 --      6,089,798
 Proceeds from loan payable - unsecured                    25,000             --
 Proceeds from Secured Convertible Debenture              500,000             --
 Proceeds from notes payable                              180,500      1,961,744
</TABLE>


                                       5
<PAGE>



                  ESSENTIAL REALITY, INC. (FORMERLY JPAL, INC.)

                 STATEMENTS OF CASH FLOWS (CONTINUED)(UNAUDITED)

<TABLE>
<CAPTION>
                                                                   Nine months ended
                                                                     September 30,
                                                               -------------------------
                                                                   2003          2002
                                                               -----------   -----------
<S>                                                            <C>           <C>
  Due to related parties                                            39,893       (34,770)
  Repayment of bridge loans                                             --      (550,000)
  Repayment of notes payable                                       (81,477)     (550,000)
  Repayment of advances from affiliated companies -net                           (23,920)
  Net advances from LCG Capital, Inc.                                   --        (5,705)
                                                               -----------   -----------

      Net cash provided by financing activities                    818,027     6,887,147

Net increase (decrease) in cash                                   (188,858)      658,129
Cash and cash equivalents, beginning of period                     188,858        13,863
                                                               -----------   -----------

Cash and cash equivalents, end of period                       $        --   $   671,992
                                                               ===========   ===========

Supplemental disclosure of cash flow information:

  Interest paid                                                $    22,500   $    22,500
                                                               ===========   ===========

  Income tax paid                                              $        --   $       325
                                                               ===========   ===========

Non-cash investing and financing activities:
  Bridge loans converted to member units                       $        --   $   500,000
                                                               ===========   ===========
  Elimination of bridge loans and accrued interest on merger
                                                               $        --   $ 2,378,431
                                                               ===========   ===========
  Assumption of notes on merger                                $        --   $ 2,517,070
                                                               ===========   ===========
  Issuance of common stock for consulting fees                 $   144,000   $        --
                                                               ===========   ===========
  Reduction of accounts payable with note receivable
                                                               $   366,642   $        --
                                                               ===========   ===========
  Accrued interest expense - bridge loans                      $        --   $   108,245
                                                               ===========   ===========
  Deferred compensation expense                                $        --   $ 1,704,815
                                                               ===========   ===========
  Discount recorded related to warrants and beneficial
  conversion feature of convertible debentures                 $   292,630   $         -
                                                               ===========   ===========


</TABLE>

  See notes to condensed financial statements



                                       6
<PAGE>

                            ESSENTIAL REALITY, INC.

                    NOTES TO CONDENSED FINANCIAL STATEMENTS

                         September 30, 2003 (UNAUDITED)

1.          BASIS OF PRESENTATION, ORGANIZATION AND OTHER MATTERS

The accompanying  unaudited condensed financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America  for  interim  financial  information  and  pursuant  to the  rules  and
regulations  of  the  Securities  and  Exchange  Commission   ("SEC").   Certain
information and footnote  disclosures  normally included in financial statements
prepared in accordance  with  accounting  principles  generally  accepted in the
United States of America have been omitted. These financial statements should be
read in  conjunction  with the financial  statements  and notes  included in the
Company's  Annual Report on Form 10 KSB for the year ended December 31, 2002. In
the  opinion of  management,  all  material  adjustments,  consisting  of normal
recurring  adjustments,  considered  necessary for a fair presentation have been
included in the accompanying unaudited condensed financial statements.

The results of operations for the interim periods are not necessarily indicative
of  the  results that maybe expected for the full year ending December 31, 2003.

NATURE OF BUSINESS

Essential  Reality,  LLC ("ER  LLC" or the  "Company")  was  formed  as  Freedom
Multimedia,  LLC in the  state of  Delaware  on July 9,  1998 and  began  active
operations on June 1, 1999. The Company  changed its name to Essential  Reality,
LLC ("ER,  LLC") on December 29,  1999.  On June 20,  2002,  ER LLC  completed a
business  combination  (recapitalization)  with JPAL,  Inc.  ("JPAL"),  a Nevada
Corporation  (the  "Transaction").  Whereby,  all of  the  members  of  ER,  LLC
contributed  their  membership  interests  in ER,  LLC to JPAL in  exchange  for
16,874,784  shares of the JPAL's common stock. The shareholders of JPAL canceled
7,564,326  of their  shares of JPAL  common  stock and were left with  1,080,934
shares  of  common  stock   representing   6.02%  of  JPAL.  Upon  the  business
combination,  ER LLC was  dissolved and all of its assets and  liabilities  were
transferred  into JPAL.  Following  the  Transaction,  JPAL  changed its name to
Essential Reality, Inc.

The Company was formed to develop,  manufacture,  and market computer peripheral
devices, with an initial emphasis on a product called "P5." However, due to less
than  expected  sales of the P5, the Company has expanded its focus and now aims
to  become a leading  developer  and  distributor  of  unique,  technology-based
consumer electronics,  gaming products,  and consumer youth products targeted to
teenagers in the mass market.

BASIS OF PRESENTATION:

The  financial  statements  of the  Company  were  prepared in  conformity  with
Statement of Financial  Accounting  Standards  ("SFAS") No. 7,  "Accounting  and
Reporting  by  Development  State  Enterprises,"   through  December  31,  2001.
Effective  October 1, 2002, the Company no longer met the  requirements  of SFAS
No. 7 and,  accordingly,  all  disclosures  required  under SFAS No. 7 have been
discontinued in these financial statements.


                                       7
<PAGE>


GOING CONCERN:

The  accompanying  financial  statements  have been prepared in conformity  with
accounting  principles  generally  accepted in the United States of America that
contemplate continuation of the Company as a going concern. However, the Company
has reported a net loss of $740,621 and $4,753,479 for the three and nine months
ended  September  30,  2003,  respectively,  and has an  accumulated  deficit of
$18,379,201,  and at  September  30,  2003  the  Company's  current  liabilities
exceeded its current  assets by  $5,192,447.  Without  realization of additional
capital,  it would be unlikely  for the Company to continue as a going  concern.
This factor raises  substantial doubt about the Company's ability to continue as
a going concern.  The financial  statements do not include any adjustments  that
might result from the outcome of the uncertainty.

Management plans to take the following steps that it believes will be sufficient
to provide the Company with the ability to continue in existence:

Management  intends  to raise  financing  through  the sale of its  stock on the
public market as well as from bridge loans.  Management  believes that with this
financing,  the Company will be able to generate  additional  revenues that will
allow the Company to continue as a going concern.  This will be  accomplished by
hiring  additional  personnel and focusing  sales and  marketing  efforts on the
distribution of product through key marketing channels currently being developed
by the Company.  The financial  statements do not include any  adjustments  that
might result from the outcome of the uncertainty.

INVENTORIES:

Inventories  are  valued  at the  lower  of  cost or  market,  with  cost  being
determined  on  the  first-in   first-out   basis.   The  inventory   represents
high-technology  parts that may be subject to rapid  technology  obsolescence or
limited sales cycle and which are sold in a highly competitive  industry. If the
actual  product  demand or  selling  prices  are less  than  cost,  the  Company
establishes an allowance account based on net realizable value.

Inventory  sold with the  right of price  protection  and/or  right of return is
reported as inventory on consignment. Consigned inventory amounted to $17,828 at
September 30, 2003 and is included as inventory on the balance sheet.

Inventory is net of a valuation allowance of $1,246,017 at September 30, 2003.

RESEARCH AND DEVELOPMENT:

Research and  development  costs are expensed in the year incurred.  These costs
totaled $477,014 and $1,557,858 for the nine months ended September 30, 2003 and
2002, respectively.


                                       8
<PAGE>


2. NOTES RECEIVABLE:

Notes receivable as of September 30, 2003 consisted of the following:

            Due from former employee                   $  50,000
            Less: reserve for collectibility              50,000
                                                       ---------
                                                       $      --
                                                       =========

In July  2001,  the  Company  signed  an  agreement  with a third  party for the
development of the P5. In connection  with the agreement,  the Company agreed to
provide loan advances up to $2,000,000,  later increased to $2,700,000, to cover
approved  development costs. The loan is non-interest  bearing and is reduced by
qualified development expenses incurred by the developer, and is further reduced
by tax credits from a division of the Canadian  Government for research,  earned
by the  developer  and passed  through to the  Company.  The Company  received a
General Security  Agreement that created a security  interest in the developer's
equipment, inventory, accounts receivable, intangibles, etc. The loan is payable
within two years after each advance  unless on demand after the two years at the
discretion  of ER. On  September  16,  2003 the  Company  executed a  Settlement
Agreement and Mutual  Release  where the parties  agreed to waive all rights and
claims against each other for its past and present  services under the Agreement
including  severance  obligations  assumed  by the  developer;  and the  Company
applied against the outstanding Tax Credit  Receivable  equal to the amount owed
to the developer.

As of September  16, 2003,  the loan balance has been reduced by  $1,960,012  of
qualified  development expenses and $418,773 of research and development credits
from the Canadian  Government.  The remaining receivable of $366,642 was applied
to the outstanding balance owed at September 16, 2003.

3. SECURED CONVERTIBLE DEBENTURE:


In  November  2002,  the  Company  opened  a  Subscription  Agreement  to  raise
$1,000,000 8% Secured  Convertible  Debenture (the "Debenture").  As of December
31, 2002, the Company had raised $500,000.  The remaining $500,000 was raised by
June 30, 2003.  The debenture for  $1,000,000  contains a beneficial  conversion
feature  for six  months at a  conversion  price of $1.00.  The  debenture  also
contains  detachable  warrants to acquire  310,500  shares of common stock at an
exercise  price of $1.00 per share  expiring in five  years.  The  Debenture  is
collateralized by the Company's right, title, and interest in and to all present
and future rights to payment of goods and services.

During the three months ended September 30, 2003, the Company issued an
additional 700,000 warrants to one debt holder under the same terms as the
original warrants. The estimated value of the warrants totaled $115,198 and was
determined using the Black-Scholes pricing model with the following assumptions:
(i) no expected dividends; (ii) a risk-free interest rate of 4.04%; (iii)
expected volatility of 83%; and (iv) an expected life of two years. The amount
was expensed immediately as the underlying debt has matured.



                                       9
<PAGE>


3. SECURED CONVERTIBLE DEBENTURE, Continued:


In connection with the Debenture in accordance with EITF 00-27, the Company
first determined the value of the notes and the fair value of the detachable
warrants issued in connection with this convertible debenture. The estimated
value of the 310,500 warrants (exclusive of the additional 700,000 warrants
discussed above) of $196,187 was determined using the Black-Scholes pricing
model with the following assumptions: (i) no expected dividends; (ii) a
risk-free interest rate of 4.04%; (iii) expected volatility of 83%; and (iv) an
expected life of two years. The face amount of the notes payable of $1,000,000,
which has a conversion feature for six months, was proportionately allocated to
the note payable and the warrants in the amount of $840,087 and $159,913,
respectively. The amount allocated to the warrants of $159,913 was recorded as a
discount on the note payable. The value of the note payable was then allocated
between the note and the preferential conversion feature, which amounted to
$448,331 and $391,756, respectively. The combined total discount is $551,670, is
being accreted into notes payable as additional interest expense over the
remaining life of the note. Of the $551,670 discount, as of September 30, 2003,
$531,045 has been amortized to expense. None of the note balance under this
agreement has been converted into common stock as of September 30, 2003.


As of September 30, 2003,  the Company has defaulted on the debt. The debt is no
longer convertible as the conversion feature expired on the maturity date of the
notes.


4. NOTES PAYABLE:

As of September 30, 2003,  the Company has $1,717,070 of notes payable that were
assumed  during the  Transaction  (as  described in Note 1, Nature of Business).
These notes bear  interest at 8 1/2% per annum.  As of September  30, 2003,  the
Company has accrued  $186,735 of interest and it is included in accounts payable
and accrued  expenses at September 30, 2003.  The Company has defaulted on these
loans.

In May 2003,  the  Company  issued an 8%  Unsecured  Convertible  debenture  for
$67,500.  The  debenture  which  matures  in six months  contains  a  beneficial
conversion  feature at a conversion  price $0.40.  The  debenture  also contains
detachable  warrants  to acquire  42,188  shares of common  stock at an exercise
price of $0.25 per share expiring in five years.  In accordance with EITF 00-27,
the Company  first  determined  the value of the notes and the fair value of the
detachable  warrants issued in connection with this convertible  debenture.  The
estimated  value of the  42,188  warrants  of $3,746  was  determined  using the
Black-Scholes  pricing  model with the  following  assumptions:  (i) no expected
dividends; (ii) a risk-free interest rate of 4.04%; (iii) expected volatility of
83%; and (iv) an expected life of two years.  The proceeds were  proportionately
allocated  to the note  payable  and the  warrants  in the amount of $63,951 and
$3,549,  respectively.  The  amount  allocated  to the  warrants  of $3,549  was
recorded as a discount on the note  payable.  Due to the market price being less
than the conversion  price no preferential  conversion  exists.  The discount is
being  accreted  into notes  payable as  additional  interest  expense  over the
remaining  life of the note.  Of the $3,549  discount,  as of September 30, 2003
$2,365  has been  amortized  to  expense.  None of the note  balance  under this
agreement has been  converted  into common stock as of September  30, 2003.  The
debt and convertibility featured expired without repayment or conversion.


                                       10
<PAGE>


4. NOTES PAYABLE continued:

In June 2003,  the Company  issued an 8%  Unsecured  Convertible  Debenture  for
$40,000.  The  debenture,  which  matures in six months,  contains a  beneficial
conversion  feature  at a  conversion  price of $0.40.  The  debenture  contains
detachable  warrants  to acquire  33,000  shares of common  stock at an exercise
price of $0.25 per share expiring in five years.  In accordance with EITF 00-27,
the Company  first  determined  the value of the notes and the fair value of the
detachable  warrants issued in connection with this convertible  debenture.  The
estimated  value of the  33,000  warrants  of $5,631  was  determined  using the
Black-Scholes  pricing  model with the  following  assumptions:  (i) no expected
dividends; (ii) a risk-free interest rate of 4.04%; (iii) expected volatility of
83%; and (iv) an expected life of two years.  The proceeds were  proportionately
allocated  to the note  payable  and the  warrants  in the amount of $35,064 and
$4,936,  respectively.  The  amount  allocated  to the  warrants  of $4,936  was
recorded as a discount on the note  payable.  Due to the market price being less
than the conversion  price no preferential  conversion  exists.  The discount is
being  accreted  into notes  payable as  additional  interest  expense  over the
remaining  life of the note.  Of the $4,936  discount,  as of September 30, 2003
$2,879  has been  amortized  to  expense.  None of the note  balance  under this
agreement has been converted into common stock as of September 30, 2003.

From July 2003 to September 2003 the Company issued an 8% Unsecured  Convertible
Debenture for $73,000.  The debenture,  which matures in six months,  contains a
beneficial  conversion  feature at a conversion  price of $0.40.  The  debenture
contains  detachable  warrants to acquire  83,428  shares of common  stock at an
exercise  price of $1.25 per share  expiring in five years.  In accordance  with
EITF 00-27,  the Company  first  determined  the value of the notes and the fair
value of the  detachable  warrants  issued in connection  with this  convertible
debenture.  The estimated  value of the 83,428 warrants of $1,768 was determined
using the  Black-Scholes  pricing model with the following  assumptions:  (i) no
expected  dividends;  (ii) a risk-free  interest rate of 4.04%;  (iii)  expected
volatility of 83%; and (iv) an expected  life of five years.  The face amount of
the notes payable of $73,000,  which has a conversion feature of six months, was
proportionately  allocated to the note payable and the warrants in the amount of
$71,274 and $1,726, respectively. The amount allocated to the warrants of $1,726
was  recorded as a discount on the note  payable.  Due to the market price being
less than the conversion price no preferential conversion exits. The discount is
being  accreted  into notes  payable as  additional  interest  expense  over the
remaining  life of the note. Of the $1,726  discount,  as of September 30, 2003,
$592  has  been  amortized  to  expense.  None of the note  balance  under  this
agreement has been converted into common stock as of September 30, 2003.


5, EQUITY

On March 10,  2003,  the Company  entered  into an  Investment  banking/Advisory
Agreement with First Securities USA, Inc. through its SBI USA division  engaging
SBI as exclusive  advisor and agreed to pay the Investment  Banker a retainer of
25,000 shares of common stock of the Company.

On March 12, 2003,  the Company sold 100,000 shares of common stock to a private
investor for $1.00 per share totaling $100,000.



                                       11
<PAGE>


5, EQUITY, Continued

On April 1,  2003,  the  Company  issued  240,000  shares of  common  stock to a
consultant  for services to be rendered over a two year period.  The fair market
value of the stock of $144,000 was determined  based on the closing price of the
stock on the date of issuance.  The contract  amount will be amortized  over the
contract  period.  The amount has been  offset  against  equity due to the stock
being issued before the services have been rendered.


6. STOCK OPTION PLANS:

The Company has elected to follow Financial Accounting Standards Board Statement
No. 123 (Accounting for  Stock-Based  Compensation)  and accordingly the Company
determined  compensation costs based on the fair value at the grant date for its
stock options.

As of  September  30,  2003,  287,334  options  were  cancelled  because  of the
termination of certain employees.

A schedule of activity  with respect to the  Company's  stock option plans is as
follows:

<TABLE>
<CAPTION>
                                                        Weighed
                                            Number      Average of
                                            of Shares   Exercise Price
                                            ---------   --------------
<S>                                         <C>           <C>
Outstanding at December 31, 2002            1,357,000     $      1.08
Granted Directors and Employees                50,000             .35
Granted Advisors and Consultants                   --              --
Exercised                                          --              --
Cancelled                                     287,334             .67
                                            ---------   --------------
Outstanding a September 30, 2003            1,119,666     $      1.22
                                            =========   ==============
Options exercisable at September 30, 2003     559,900     $      1.22
                                            =========   ==============
</TABLE>

The following tables summarize  information about stock options  outstanding and
exercisable at September 30, 2003:

<TABLE>
<CAPTION>
                                    Weighted              Outstanding
                                    Average               Options            Options           Exercisable
Range of          Number of         Remaining in          Weighted           Number            of Weighted
Exercise          Outstanding       Contractual Life      Average            Shares            Average
Prices            Options           in Year Exercise      Price              Exercisable       Exercise Price
------            -----------       ----------------      -----------        -----------       --------------
<C>                <C>                      <C>          <C>                     <C>               <C>
$.65 to $1.00        921,266                 8.75         $      .71              421,949          $ .71
1.01 to $4.00        198,400                 8.75               2.85              137,951           2.85
                   ---------                 ----          ---------              -------          -----
                   1,119,666                 8.75          $    1.22              559,900          $1.22
                   =========                 ====          =========              =======          =====
</TABLE>


                                       12
<PAGE>

7. WARRANTS:

A schedule of warrant activity as September 30, 2003 is as follows:

<TABLE>
<CAPTION>
                                                        Weighed
                                            Number      Average
                                            of Shares   Exercise Price
                                            ---------   --------------
<S>                                         <C>           <C>
Outstanding at December 31, 2002            1,286,211   $   1.68
Granted                                     1,569,116       1.68
Exercised                                          --         --
Cancelled                                          --         --
                                            ---------   --------------
Outstanding and exercisable at
           September 30, 2003               2,855,327   $   1.68
                                            =========   ==============
</TABLE>

All of the warrants granted were granted in conjunction with secured convertible
debentures and notes payable. See Notes 3 and 4.

In connection  with the  termination  of the CEO in February  2003,  the Company
issued five year warrants to purchase  250,000 shares of common stock.  The fair
value of the warrants of $177,409 was determined using the Black-Scholes pricing
model with the following  assumptions:  (i) no expected  dividends;  (ii) a risk
free  interest rate of 4%; (iii)  expected  volatility of 80%; and (iv) expected
life of five years.

In connection with the consulting  contract for public relation services entered
into in March 2003,  the Company  issued five year warrants to purchase  250,000
shares of common stock. The fair value of the warrants of $88,785 was determined
using the  Black-Scholes  pricing model with the following  assumptions:  (i) no
expected  dividends;  (ii) a risk  free  interest  rate  of 4%;  (iii)  expected
volatility of 80%; and (iv) expected life of five years.


8. RELATED PARTY TRANSACTIONS

The Company had the  following  related party  transactions  for the nine months
ended September 30, 2003 as follows:

The Company received advances from affiliated companies, which are entities that
are affiliated  with certain  shareholders  of the Company and totaled $1,712 at
September 30, 2003 and are included in due to related party.

Non-interest  bearing  advances from an affiliate of certain  shareholders,  LCG
Capital Group,  LLC,  totaling $70,912 are outstanding at September 30, 2003 and
are included in due to related party.

Included in product and development  expense is $25,000 and $26,700 for the nine
months ended  September 30, 2003 and 2002,  respectively,  to a company owned by
certain  shareholders of the Company that have consulted with the Company in the
areas of product strategy,  design, and development.  The outstanding balance at
September 30, 2003 totaled $19,030 and is included in due to related party.


                                       13
<PAGE>


8. RELATED PARTY TRANSACTIONS, Continued:

Included in general and administrative expenses are costs incurred of $1,323 and
$57,672 for the nine months ended September 30, 2003 and 2002, respectively,  by
two  entities  that are related to certain  members of LCG Capital  Group.  Such
costs  were  determined  to be  allocable  costs  to  the  Company  and  include
consulting fees related to business development,  employee salaries,  occupancy,
telephone,  and computer  leases.  In the case of employee  salaries,  costs are
allocated  to the  Company  based on the time each  employee  conducts  business
specific to the Company. In the case of the other expenses,  costs are allocated
based on a  percentage  of  resources  used by the  Company.  Included in due to
related parties is $4,039 at September 30, 2003.

Included in general and administrative  expenses is $48,116, and $72,000 for the
nine months ended September 30, 2003 and 2002, respectively of marketing expense
payable to a company owned by a person related to certain members of the Company
who assisted in establishing and executing its marketing  programs.  Included in
due to related parties is $100,662 at September 30, 2003.

Included  in general and  administrative  expenses is $37,500 and $7,500 for the
nine months ended September 30, 2003 and 2002, respectively for directors' fees.
Included in due to related party is $45,000 at September 30, 2003.

9. CONTRACTUAL OBLIGATIONS/GAME PUBLISHERS-LICENSING AGREEMENTS:

The Company has obligations  under contracts  entered into prior to December 31,
2002 for consulting,  product  development and royalties.  At September 30, 2003
included in accounts  payable and accrued  expenses is $360,485 related to these
contracts.

10. COMMITMENTS

Consulting Agreement

March 14, 2003,  effective April 1, 2003, the Company  retained a consultant for
institutional financial public relations for at least two years. The Company may
terminate this agreement at any time in the event of gross negligence.  In which
case all shares of Common Stock  distributed,  as discussed  below that have not
been earned shall be forfeited by the consultant.  After the first year,  either
party  may  terminate  the  agreement  upon  thirty  days'  written  notice.  If
terminated  after the first year, the consultant  will return to the Company the
lesser of (i) $1.00 for each share of common stock which is unearned  (i.e.  the
number of months  remaining to the term  multiplied by 10,000) as of the date of
termination;  or (ii) the actual  value of the shares of common  stock which are
unearned as if the date of termination.

As  compensation,  the Company will issue a five-year  warrant to purchase up to
250,000  shares of the  Company's  common  stock at a strike  price of $1.00 per
share.  Expense of $117,409  has been  recorded as it relates to the fair market
value of the  warrants.  The fair market  value was  determined  using the Black
Scholes pricing model with the following assumptions: (i) no expected dividends;
(ii) risk-free  interest rate of 4.04%;  (iii)  expected  volatility of 83%; and
(iv) expected life of five years.



                                       14
<PAGE>

10. COMMITMENTS, Continued:

Consulting Agreement, continued

In addition the Company  will pay a $10,000  retainer per month for 24 months in
the form of the Company's  common stock for 240,000  shares in advance and to be
registered  by the Company at its expense at the  earliest  possible  time.  The
value of the services to be performed was determined on the date of the issuance
using the closing price of the stock ($0.60 per share).  The expense of $144,000
is  being  amortized  over the  life of the  contract.  No  services  have  been
performed to date.

The Company will also  reimburse the  consultant  for  reasonable  out-of pocket
expenses.  The out-of  pocket  expenses will not exceed $250 with the consent of
the Company.  The Company  will prepay  $5,000 and will  replenish  this account
monthly to maintain the $5,000 level.  No payments  have been made to date.  The
balance owed is included in account payable as of September 30, 2003.

Lease Agreement

In April  2003,  the  Company  entered  into an  operating  lease for office and
warehouse  space in Minneola,  New York. The operating  lease is effective for 5
years with an option to renew for 3 years.  The minimum  monthly  base rental is
$4,500 with annual  increases  of two hundred per month plus 20% of the increase
in real estate taxes over the base year.

The  Company  moved  from the New York  location  on July 1, 2003.  The  Company
forfeited the security deposit as payment for breaking the lease.


11. SUBSEQUENT EVENTS

On October  15,  2003,  the case filed by MC Squared in United  States  District
Court for the Southern District of New York against us, Humbert Powell, Chairman
of our Board of Directors,  Steven Francesco,  our ex-Chief  Executive  Officer,
David Devor,  an officer and Brian  Jedwab,  a member of our Board of Directors,
alleging  breach of a development  agreement  between us  (originally  Essential
Reality,  LLC) and MC Squared was settled for $53,643.  The full amount has been
accrued and included in accounts  payable and accrued  expenses at September 30,
2003.

Subsequent  to September  30, 2003,  pursuant to the  Subscription  Agreement to
raise  $250,000 of 8% Unsecured  Convertible  Debenture (the  "Debenture"),  the
Company  received an additional  $33,000.  The  debenture  contains a conversion
feature  for six  months at a  conversion  price of $0.40.  The  debenture  also
contains  detachable  warrants to acquire  52,800  shares of common  stock at an
exercise price of $1.25 per share expiring in five years.

If the Company raises at least  $3,000,000,  to the extent the Debenture has not
been repaid or  converted  in full,  the  remaining  outstanding  amounts  shall
automatically  be deemed  converted at the lower of $0.40 per share or 10% below
offering  per  security  issued  for future  financing  debt  equity  capital of
Company.


                                       15
<PAGE>

11. SUBSEQUENT EVENTS, continued

In November 2003,  pursuant to a letter of intent amended  February 6, 2004, the
Company issued a 6% Unsecured  Convertible  Debenture for $500,000,  the Company
raised $310,715 as of December 31, 2003. The debenture,  which matures  February
13, 2004,  contains a  beneficial  conversion  feature at a conversion  price of
$0.02.  The  conversion  right  may only be  exercised  upon the  earlier  of an
offering of debt or equity  capital of at least  $3,000,000 or 180 days from the
Closing as defined in the Note Purchase Agreement.

On February 5, 2004 the Company  announced  that it had  executed a binding term
sheet (the "Term Sheet"),  which sets forth the preliminary terms and conditions
of a proposed merger transaction between Essential and Alliance. This Term Sheet
supersedes  and  replaces  the  Letter of Intent  dated  November  6,  2003.  As
proposed,  the  shareholders  of Alliance would exchange their shares of capital
stock in Alliance for shares of common stock of Essential.

Upon the closing of the merger, as currently  contemplated,  the shareholders of
Alliance  will  own  common  stock  representing   approximately  64.5%  of  the
outstanding capital stock of the Company on a fully-diluted basis.

The  consummation  of the  transaction  is  contingent  on a number of  factors,
including but not limited to, the  completion of due diligence and the execution
of a definitive  agreement.  There can be no  assurance  that the merger will be
consummated  or, if  consummated,  that it will be  consummated on the terms set
forth in the Term Sheet.

The change in business conditions in the fourth quarter and the execution of the
letter of intent  resulted  in the sale of the  entire  inventory  on hand as of
December 31, 2003 at $6.00 per unit in the first  quarter of 2004.  In addition,
pursuant to FASB  statement of SFAS No.144  "Accounting  for the  Impairment  or
Disposal of Long -Lived Assets" the Company was not able to determine the future
impact on the financial position,  results of operations and future  cash flows,
as a result the Company  recorded an impairment loss on the  intangible  assets,
web site development  costs,  capitalized  development  costs, and all the fixed
assets as of December 31, 2003.



                                       16
<PAGE>


Item 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS of FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

The following  discussion and analysis  should be read in  conjunction  with the
unaudited condensed  financial  statements and related notes and other financial
information  included in this Quarterly Report on Form 10-QSB. It is intended to
assist the reader in understanding and evaluating the financial  position of the
Company.   This  report  contains,   in  addition  to  historical   information,
forward-looking  statements that involve risks and uncertainties.  Words such as
"may", "will"," should", "could", "expects", "plans", "intends",  "anticipates",
"believes",  "estimates",  "potential",  or  "continue"  or the negative of such
terms and other comparable terminology are intended to identify  forward-looking
statements.  The  Company's  actual  results  could differ  materially  from the
results  discussed in the  forward-looking  statements.  Risk factors that could
cause or contribute  to such  differences  include those  discussed in Essential
Reality,  Inc.'s  annual  report on Form 10KSB for the year ended  December  31,
2002, filed with the Securities and Exchange Commission.

            Overview

On June 20, 2002,  Essential Reality,  LLC, a Delaware Limited Liability Company
("ER  LLC"),  completed  a  business  combination  with  JPAL,  Inc.,  a  Nevada
corporation and an SEC registrant  ("JPAL") pursuant to an Amended  Contribution
Agreement  between  ER LLC  and  JPAL,  whereby  all of  the  members  of ER LLC
contributed their membership  interests in ER LLC to the Company in exchange for
an  aggregate  of  16,874,784   shares  of  the  Company's   common  stock  (the
"Transaction").  Concurrent  with  the  Transaction,  the  shareholders  of JPAL
canceled  7,564,326  of their  shares  of JPAL  common  stock and were left with
1,080,934 shares of common stock  representing  6.02% of the Company.  Following
the  Transaction,  JPAL  changed  its  name  to  Essential  Reality,  Inc.  (the
"Company") and ER LLC, a wholly owned subsidiary of the Company, was merged into
the Company.

The Transaction was accounted for as  recapitalization of ER LLC. The management
of the ER LLC remained as the management of the Company.  Since the  Transaction
was  accounted  for as a  recapitalization  and not a business  combination,  no
goodwill has been  recorded in  connection  with the  Transaction  and the costs
incurred  in  connection  with  the  Transaction  has  been  accounted  for as a
reduction of additional paid-in capital. As a result of recapitalization (i) the
historical  financial statements of the Company for periods prior to the date of
the Transaction are no longer the historical  financial statements of JPAL, and,
therefore,  JPAL's historical financial statements are no longer presented; (ii)
the historical financial statements of the Company for periods prior to the date
of the  Transaction  are those of ER LLC;  (iii) all references to the financial
statements of the "Company" apply to the historical  financial  statements of ER
LLC prior to the  Transaction  and to the  financial  statements  of the Company
subsequent to the  Transaction;  and (iv) any  reference to the Company  applies
solely to ER LLC and Essential Reality, Inc.

Essential  Reality,  LLC  was  organized  in 1999 as a  developer  of  real-time
tracking and sensory  technologies.  From its formation  through the date of its
dissolution as a result of the business combination, it was involved in research
and development, marketing, entering into strategic relationships and hiring key
employees in connection with the final production,  sale and distribution of the
P5(TM). The P5(TM), a virtual controller, is a glove-like peripheral device that
enables users to control the action on a screen through  simple hand  movements,
rather than complicated keystroke and mouse combinations.  This product is based
on patented, and several patent-pending, technologies that address technological



                                       17
<PAGE>


limitations of current  devices,  such as the mouse,  hand-held game controllers
and joysticks.  The P5(TM) is engineered to capture five-finger bend sensitivity
enabling gesture recognition,  combined with an optical tracking technology that
captures  the  movement  of the hand in 3D  space,  without  the use of a mouse,
joystick,  keyboard or the like. For example, if a user is trying to open a door
while  playing an adventure  game,  the P5(TM)  allows the user to make the hand
motion of opening a door and see the door open  simultaneously  with the motion,
as  opposed to the user  pressing a button and seeing the door open  immediately
thereafter.  To date,  the P5(TM) is the only product that we have developed and
marketed.

Critical Accounting Policies

REVENUE RECOGNITION:

The Company  recognizes under Staff Accounting  Bulletin 101, gross revenue when
the  earnings  process  is  complete,  as  evidenced  by an  agreement  with the
customer, transfer of title and the rights and risks of ownership have passed to
the customer, the product is delivered, the price is fixed and determinable, and
collection  of the  resulting  receivable  is  reasonably  assured.  Because the
Company allows many of its distributors price protection and/or right of return,
recognition  of  revenue  in the  accompanying  financial  statements  has  been
deferred until the  distributors  sell the merchandise and the cash is collected
by the  Company.  Inventory  at  distributors  is reported as  consigned  in the
balance sheet.

In cases where sales are made to certain distributors and title has transferred,
risks of  ownership  has  passed  and  collection  is  assured,  sales have been
recorded and an account receivable has been recorded.

The   Company   records  an   allowance   for   uncollectible   accounts   on  a
customer-by-customer basis as appropriate.

The Company may bundle product offerings from third-party vendors along with the
P5 product or may sell the P5  independently.  The software is incidental to the
product as a whole and according to Financial  Accounting Standards Board No 86,
Accounting  for the Costs of Computer  Software To Be Sold,  Leased or Marketed,
all revenue will be  allocated  to the P5. As such,  the Company will record the
gross amount of the purchase price of the P5 product as revenue and will reflect
the  royalty  to be paid to the  third-party  vendor as a  component  of cost of
sales.

INVENTORY:

Inventory is valued at the lower of cost or market,  with cost being  determined
on the first in-first out basis. The inventory represents  high-technology parts
that maybe  subject  to rapid  technology  obsolescence  and which are sold in a
highly competitive  industry. If the actual product demand or selling prices are
less favorable than we estimate,  the company  establishes an allowance  account
based  on net  realizable  values.  Inventory  sold  with  the  right  of  price
protection and or right of return is reported as inventory on consignment.



                                       18
<PAGE>


USE OF ESTIMATES:

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America requires  management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities,  disclosure of contingent  liabilities at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

RESULTS OF OPERATIONS:

The  unaudited  financial  statements  have been  prepared  in  accordance  with
accounting  principles  generally  accepted in the United  States of America for
interim financial information.  In our opinion, we have included all adjustments
(consisting only of normal recurring accruals)  considered  necessary for a fair
presentation.

Revenue.  For the  three and nine  months  ended  September  2003,  the  Company
recognized  product-related  revenues  in the  amount of  $57,143  and  $157,301
respectively  as  compared to no  revenues  for the three and nine months  ended
September 30, 2002. The increase in our revenue  resulted from the launch of our
first product, the P5(TM) in November 2002.

Cost of Revenue. For the three and nine months ended September 30, 2003, cost of
revenue  totaled  $32,962  and  $156,702  compared to no cost of revenue for the
three and nine months ended  September  30, 2002.  The Company was a development
stage  company  through  September  30,  2002.  The  increase in cost of revenue
resulted from the Company  transitioning  from a development stage company to an
operating company effective October 1, 2002.

Product development  expense.  For the three and nine months ended September 30,
2003 product  development  expense totaled  $18,358 and $477,014,  respectively,
compared  to  $676,748  and  $1,557,858  for the  three  and nine  months  ended
September  30, 2002,  respectively.  The  decrease of $658,390  and  $1,080,844,
respectively, compared to the three and nine months ended September 30, 2002 was
primarily due to the completion of the  manufacturing of the P5TM product during
2002.

Sales and  marketing  expense.  For the three and nine months end  September 30,
2003 sales and marketing  expense totaled  $146,046 and $501,173,  respectively,
compared  to  $411,802  and  $1,028,325  for the  three  and nine  months  ended
September  30,  2002,  respectively.  The  decrease  of  $265,756  and  $527,152
respectively, compared to the three and nine months ended September 30, 2002 was
primarily due to an increase of $24,864 in advertising,  decrease of $190,996 in
marketing  consultants,  decrease of $182,344 in travel and  entertainment and a
decrease on $81,480 in trade shows.

General  and  administrative  expenses.  For the  three  and nine  months  ended
September  30, 2003 general and  administrative  expenses  totaled  $191,918 and
$774,405,  respectively,  compared to $681,756 and  $1,585,146 for the three and
nine months  September  30,  2002,  respectively.  The  decrease of $489,838 and
$810,741,  respectively,  compared to the three and nine months ended  September
30, 2002 was  primarily  due to a decrease of $754,538 in salaries and benefits,
decrease in moving expenses of $10,178,  decrease in computer leases of $16,991,
decrease  in  consultants   of  $26,471,   which  was  offset  by  increases  in
professional  fee of $92,913 and increase in  insurance of $45,278.  Included in
general and administrative expenses are costs incurred of approximately $271 and
$48,116 for the three and nine months  ended  September  30, 2003  respectively,
compared to $49,800 and $128,100  for the three and six months  ended  September


                                       19
<PAGE>


30, 2002,  respectively by Business  Development.com and Hymax Group, LLC. These
companies  are  related to  certain  members of LCG  Capital  Group.  Such costs
include consulting fees,  employee salaries,  occupancy,  telephone and computer
leases. In the case of employee salaries, costs are allocated to us based on the
time each employee  conducts  business  specific to us. In the case of the other
expenses,  costs are allocated based on a percentage of resources used by us. In
our opinion,  allocated expenses incurred from related parties  approximate fair
market value.

Severance  compensation for the three months and nine months ended September 30,
2003 was  $(90,000)  and  $204,511 as compared to no  severance  expense for the
three and nine months  ended  September  30, 2002.  The  severance is due to six
former  employees.  No payments have been made to date. The negative  amount for
the current quarter  represents the reversal of severance  accrued to one of the
individuals due to forfeiture of benefits.

Stock based  compensation  for the three months and nine months ended  September
30, 2003 totaled $196,389 and $1,361,937  respectively  compared to $442,657 and
$561,156 for the three and nine months ended  September 30, 2002,  respectively.
The  non-cash   charge  was  related   primarily  to  amortization  of  deferred
compensation  for stock  options and warrants  issued to  employees,  directors,
advisors  and  consultants  and stock and  warrants  issued to  consultants  for
services rendered.

OTHER  INCOME  (EXPENSE)  Interest  income for the three and nine  months  ended
September  30, 2003 totaled $0 and $1,213  respectively,  compared to $9,002 and
$11,853 for the three and nine months ended  September  30, 2002,  respectively.
The  decrease  from  $11,853 to $1,213 was due to a decrease of  available  cash
balances.

Interest expense for the three and nine months ended September 30, 2003 totaled
$229,684 and $1,248,043 respectively, compared to $677,504 and $816,390 for the
three and nine months ended September 30, 2002, respectively. The (decrease)
increase of ($447,820) and $431,653 compared to the three and nine months ended
September 30, 2002, related primarily to Notes Payable of $,167,773, and
$1,074,223, accreted interest on warrants and the convertible notes issued at
the time of the merger and subsequent financing during the three months and nine
months ended September 30, 2003 and 2002, described in "Liquidity and Capital
Resources" below.

Liquidity and Capital Resources

Since its inception  through  September 30, 2003 we had  accumulated  deficit of
$18,379,201 and expect to continue to incur losses for the  foreseeable  future.
We have  financed  our  operations  primarily  through  bridge loans and private
placements described in the overview.

For the  nine  months  ended  September  30,  2003 net  cash  used in  operating
activities decreased from $6,155,528 to $993,243 a net decrease of $5,162,285 as
compared  to the  nine  months  ended  September  30,  2002.  Net  cash and cash
equivalents used in operations for the year nine months ended September 30, 2003
consisted of net loss from  continuing  operations of  $4,753,479  less non cash
items  consisting  of  non-cash  compensation  of  $1,380,875,  amortization  of
deferred interest of $189,269, imputed interest on conversion of debt instrument
$884,954 and increase in accounts payable of $877,091

Net cash used in investing  activities  for the nine months ended  September 30,
2003  decreased from $73,490 to $13,642 a net decrease of $59,848 as compared to
the nine months ended  September 30, 2003. The decrease  primarily the result of
the production equipment purchased in 2002 when manufacturing started.



                                       20
<PAGE>


Net cash provided by financing  activities  for the nine months ended  September
30, 2003 decreased  from  $6,887,147 to $818,027 a net decrease of $6,069,120 as
compared to the nine months ended  September 30, 2002. The change was due to the
Company completing private placements, which generated cash proceeds of $705,500
and a sale of  100,000  shares of  restricted  securities  at $1.00  per  share.
Repayments of $81,477 of notes payable and book overdraft of $54,111 contributed
to the change in financing activities.

The  Company  will  require  additional  funding  in order to reach the point of
self-sufficiency.  The  Company  hopes to raise  the  additional  cash  from the
exercise  of  certain  warrants  and/or  through  additional  offerings  of  its
securities.

RISK FACTORS

Information contained in this Form 10-QSB contains "forward-looking statements."
An  investment  in our common stock  involves a high degree of risk.  You should
carefully  consider the factors  described below, in addition to those discussed
elsewhere in this report, in analyzing an investment in our common stock. If any
of the risks described below materialize,  our business, financial condition and
results of operations  would likely suffer,  the value of our common stock could
be  adversely  affected and you could lose all or part of the money you paid for
our common  stock.  In addition,  the  following  factors could cause our actual
results  to  differ  materially  from  those  projected  in our  forward-looking
statements,  whether  made in this  10-QSB,  our annual  report on form  10-KSB,
future press releases SEC filings or orally, whether in presentations, responses
to questions or otherwise.

Unless otherwise  described therein,  or unless the context otherwise  requires,
references to "the Company",  "ER", "we", "our",  "us", "it" or "its",  refer to
the Company, together with its subsidiaries and affiliates, and their respective
predecessors.

Considerations and Risks Relating to Our Business and the Company

We have a limited operating history.

We were incorporated in 1999 and had no material operations between 1999 through
the third quarter 2003. We were in development  stage from 1999 to September 30,
2002 and had no material  operations until such time.  Essential Reality,  Inc.,
commenced  its  operations  in October 1, 2002.  Accordingly,  we have a limited
operating history. Investors must consider the risks and difficulties frequently
encountered by early stage  companies,  particularly in rapidly evolving markets
such as the virtual reality. Such risks include the following:

       competition;

       need for increased acceptance of products;

       ability to continue to develop and extend our brand identity;

       ability to anticipate and adapt to a competitive market;

       ability to effectively manage rapidly expanding operations;



                                       21
<PAGE>


amount  and timing of  operating  costs and  capital  expenditures  relating  to
expansion of our business,  operations,  and infrastructure;  ability to provide
superior customer service; and dependence upon key personnel.

We cannot be certain that our business  strategy  will be  successful or that we
will successfully  address these risks. In the event that we do not successfully
address these risks, our business, prospects, financial condition and results of
operations could be materially and adversely affected.

We do not have a history of  profitability  and,  consequently,  cannot  predict
whether we will ever reach profitability.

Since we began  operations in October 1, 2002,  we have not  generated  profits.
Moreover,  we will need to  increase  significantly  our  operating  expenses to
implement  our business  plan. As a result of the  foregoing  factors,  we could
incur  significant  losses on a quarterly  and annual basis for the  foreseeable
future.  Our  ability to  generate  revenues  and  profits in the long term will
depend  primarily  upon the successful  implementation  of our business plan. No
assurance can be given that we will be successful in  implementing  our business
plan or that we will generate sufficient revenues to achieve profitability.

If the  anticipated  cash generated by our operations are  insufficient  to fund
requirements and losses, we will need to obtain  additional funds.  There can be
no assurance that financing will be available in amounts or on terms  acceptable
to us, if at all.

We believe that we will require  additional  financing to implement our business
plan.

We anticipate  that we will require  additional  financing in order to implement
our business  plan.  Such  financing may be in the form of equity,  debt or bank
financing.  Particularly in light of our limited operating history, there can be
no assurance that we will be able to obtain the necessary  additional capital on
a timely basis or on  acceptable  terms,  if at all. In any of such events,  our
business,  prospects,  financial  condition,  and results of operations would be
materially  and  adversely  affected.  As a result  of any such  financing,  the
holders of our Common Stock may experience substantial dilution.

Fluctuations in operating results may affect our stock price.

Our operating results may fluctuate significantly in the future as a result of a
variety  of  factors,  many of which are  outside  our  control.  These  factors
include:  (i) the  amount and timing of  capital  expenditures  and other  costs
relating to the implementation of our business plan, including  acquisitions of,
and investments in, competing or complementary  companies or technologies;  (ii)
our  introduction  of new  products  or services  or by our  competitors;  (iii)
pricing  changes  in  the  printed  circuit  board   manufacturing  or  assembly
industries; (iv) technical difficulties with respect to the use of our products;
(v)  regulatory  changes;  and (vi)  general  economic  conditions  and economic
conditions  specific to the printed circuit board manufacturing  industry.  As a
strategic response to changes in the competitive  environment,  we may from time
to time make certain pricing,  service,  or marketing  decisions or acquisitions
that could have a material adverse effect on our business, prospects,  financial
condition, and results of operations.

We do not expect to pay cash dividends in the foreseeable future.



                                       22
<PAGE>


We have not paid  dividends  or other  distributions  and do not  intend  to pay
dividends or other  distributions for the foreseeable  future,  and we intend to
reinvest all of our earnings in the development of our business. In addition, we
may enter into agreements with lenders or other financing  parties that restrict
or prohibit  the payment of dividends or other  distributions.  Accordingly,  no
assurance can be given that we will pay any dividend or other  distributions  to
the holders of our capital stock.

We are heavily dependent upon the electronics  industry,  and excess capacity or
decreased  demand  for  products  produced  by this  industry  could  result  in
increased price  competition as well as a decrease in our gross margins and unit
volume sales.

Our business is heavily dependent on the electronics  industry.  All our revenue
is generated from the only product the P5(TM) in the electronic industry,  which
is characterized by intense  competition,  relatively short product  life-cycles
and significant fluctuations in product demand. Furthermore,  these segments are
subject to economic  cycles and have  experienced in the past, and are likely to
experience in the future,  recessionary  periods. A recession or any other event
leading to excess  capacity or a downturn in these  segments of the  electronics
industry could result in intensified price competition,  a decrease in our gross
margins and unit volume sales and  materially  affect our  business,  prospects,
financial condition and results of operations.

If  we  are  unable  to  respond  to  rapid  technological  change  and  process
development, we may not be able to compete effectively.

The market for our products is characterized by rapidly changing  technology and
continual  implementation of new production processes. The future success of our
business  will depend in large part upon our ability to maintain and enhance our
technological  capabilities,  to develop and market  products that meet changing
customer  needs and to  successfully  anticipate  or  respond  to  technological
changes on a  cost-effective  and timely  basis.  We expect that the  investment
necessary to maintain our technological position will increase as customers make
demands for  products and  services  requiring  more  advanced  technology  on a
quicker turnaround basis. We may not be able to borrow additional funds in order
to respond to technological changes as quickly as our competitors.  In addition,
the printed  circuit board  industry  could  encounter  competition  from new or
revised   manufacturing   and  production   technologies  that  render  existing
manufacturing and production technology less competitive or obsolete. We may not
respond effectively to the technological requirements of the changing market. If
we need new technologies and equipment to remain  competitive,  the development,
acquisition and  implementation of those  technologies and equipment may require
us to  make  significant  capital  investments.  In  the  event  that  we do not
successfully address these risks, our business,  prospects,  financial condition
and results of operations would be materially and adversely affected.

We are dependent upon a small number of customers for a large portion of our net
sales,  and a decline in sales to major  customers  could  materially  adversely
affect our results of operations.

A relatively small number of customers are responsible for a significant portion
of our net sales. Our principal  customers may not continue to purchase products
from us at past levels and we expect a significant portion of our net sales will
continue  to  be  generated  by  a  small  number  of  customers.  Our  customer
concentration   could  increase  or  decrease   depending  on  future   customer
requirements,  which  will  depend  in large  part on market  conditions  in the
electronics  industry segments in which our customers  participate.  The loss of
one or more major  customers or a decline in sales to our major  customers could
significantly  harm our business  and results of  operations.  In  addition,  we
generate  significant  accounts receivable in connection with providing services



                                       23
<PAGE>


to our  customers.  If one or more of our  significant  customers were to become
insolvent or were otherwise  unable to pay for the services  provided by us, our
business,  prospects,  financial  condition  and results of  operations  will be
materially and adversely affected.

Our results of  operations  are subject to  fluctuations  and  seasonality,  and
because many of our operating  costs are fixed,  even small  revenue  shortfalls
would materially decrease our gross margins.

Our results of operations vary for a variety of reasons, including:

timing of orders from and shipments to major customers;

the levels at which we utilize our manufacturing capacity;

changes in the pricing of our products or those of our competitors;

changes in our mix of revenues generated from quick-turn versus standard
lead-time production;

expenditures or write-offs related to acquisitions; and

expenses relating to expanding the existing manufacturing facility.

A significant  portion of our operating  expenses is relatively  fixed in nature
and planned  expenditures are based in part on anticipated orders.  Accordingly,
even a relatively small revenue  shortfall would  materially  decrease our gross
margins.  In addition,  depending on the patterns in the capital  budgeting  and
purchasing  cycles  of  our  customers  and  our  end-markets   served  and  the
seasonality  of the  computer  industry  generally,  our sales may be subject to
seasonal  fluctuation.  Such  seasonal  trends  may  cause  fluctuations  in our
quarterly  operating results in the future.  Results of operations in any period
should not be considered indicative of the results to be expected for any future
period.  In addition,  our future quarterly  operating results may fluctuate and
may not meet the expectations of investors. If this occurs, our ability to raise
future  equity  financing  from  existing  or new  investors  may be  materially
adversely impacted.

Because we sell on a purchase order basis, we are subject to  uncertainties  and
variability  in demand by our  customers,  which  could  decrease  revenues  and
materially adversely affect our operating results.

We sell to customers on a purchase order basis rather than pursuant to long-term
contracts and, consequently, our net sales are subject to short-term variability
in demand by our  customers.  Customers  submitting a purchase order may cancel,
reduce or delay their  order for a variety of  reasons.  The level and timing of
orders placed by our customers vary due to:

customer attempts to manage inventory;

changes in customers' manufacturing strategies, such as a decision by a customer
to  either  diversify  or  consolidate  the  number  of  printed  circuit  board
manufacturers used or to manufacture their own products internally; and

variation in demand for our customers' products.



                                       24
<PAGE>


Significant  or numerous  terminations,  reductions or delays in our  customers'
orders could  materially  adversely impact our operating  results.  In the event
that we do not  successfully  address  these  risks,  our  business,  prospects,
financial  condition and results of operations  will be materially and adversely
affected.

Our  indebtedness  could  adversely  affect  our  financial  condition  and  the
restrictions  imposed by the terms of debt  instruments  may severely  limit our
ability to plan for or respond to changes in our business.

Our level of debt could have negative consequences. For example, it could:

require us to dedicate a substantial portion of our cash flow from operations to
repayment of debt, limiting the availability of cash for other purposes;

increase our  vulnerability to adverse general economic  conditions by making it
more  difficult  to borrow  additional  funds to maintain our  operations  if we
suffer revenue shortfalls;

hinder our  flexibility in planning for, or reacting to, changes in our business
and industry by preventing us from  borrowing  money to upgrade our equipment or
facilities; and

limit or impair our  ability to obtain  additional  financing  in the future for
working  capital,  capital  expenditures,   acquisitions  or  general  corporate
purposes.

If we experience  excess  capacity due to  variability in customer  demand,  our
gross margins may fall.

We  generally  schedule  our  quick-turn  production  facility at less than full
capacity to retain our ability to respond to  unexpected  additional  quick-turn
orders. However, if these orders are not made, we may forego some production and
could experience excess capacity.  When we experience excess capacity, our sales
revenues may be insufficient to fully cover our fixed overhead  expenses and our
gross margins will fall. Conversely, we may not be able to capture all potential
revenue  in a given  period if our  customers'  demand for  quick-turn  services
exceeds our capacity during that period.

We will be competing with companies that have  substantially  greater  financial
and  manufacturing  resources  than we have and who have  been  providing  these
services  longer  than us. We may not be able to  successfully  compete  on this
basis with more established competitors.

To manage the  expansion of our  operations  and any future  growth,  we will be
required to:

improve  existing  and  implement  new  operational,  financial  and  management
information controls, reporting systems and procedures;

hire, train and manage additional qualified personnel;

expand our direct and indirect sales channels; and

effectively  transition  our  relationships  with our  customers,  suppliers and
partners.

As part of our  business  strategy,  we expect that we will  continue to grow by
pursuing  acquisitions,  assets or product  lines that  complement or expand our
existing business.



                                       25
<PAGE>


Our acquisition of companies and businesses and expansion of operations  involve
risks, including the following:

the  potential  inability  to identify  the company  best suited to our business
plan;

the  potential  inability to  successfully  integrate  acquired  operations  and
businesses  or to realize  anticipated  synergies,  economics  of scale or other
expected value;

difficulties in managing production and coordinating operations at new sites;

the potential need to restructure, modify or terminate customer relationships of
the acquired company; and

loss of key employees of acquired operations.

In  addition,  future  acquisitions  may result in dilutive  issuances of equity
securities and the  incurrence of additional  debt,  and,  although we generally
endeavor to avoid them,  large one-time  write-offs and the creation of goodwill
or other intangible assets that could result in amortization expense.

Many of our competitors and potential  competitors  have a number of significant
advantages over us, including:

greater  financial  and  manufacturing  resources  that  can be  devoted  to the
development, production and sale of their products;

more established and broader sales and marketing channels;

more manufacturing  facilities worldwide,  some of which are closer in proximity
to original equipment manufacturers;

manufacturing  facilities  which are located in countries with lower  production
costs; and greater name recognition.

In  addition,  these  competitors  may respond  more  quickly to new or emerging
technologies,  or may adapt more quickly to changes in customer requirements and
may devote  greater  resources to the  development,  promotion and sale of their
products  than  we  do.  We  must  continually  develop  improved  manufacturing
processes  to  meet  our  customers'  needs  for  complex   products,   and  our
manufacturing  process  technology  is  generally  not  subject  to  significant
proprietary  protection.  Furthermore,  increased  production  capacity  by  our
competitors  can result in an excess  supply of printed  circuit  boards,  which
could  also  lead  to  price  reductions.  During  recessionary  periods  in the
electronics  industry,  our  competitive  advantages  in the areas of  providing
quick-turn  services,  an  integrated   manufacturing  solution  and  responsive
customer  service may be of reduced  importance  to our customers who may become
more price  sensitive.  This may force us to compete  more on the basis of price
and cause our margins to decline.

We rely on suppliers for the raw materials used in manufacturing  our P5(TM) and
an increase in industry demand for these raw materials may increase the price of
these raw materials and reduce our gross margins.



                                       26
<PAGE>


Our manufacturing  process depends on the collective  industry experience of our
employees in our  industry.  If these  employees  were to leave us and take this
knowledge with them, our manufacturing process may suffer and we may not be able
to compete effectively.

We do not have patent or trade secret protection for our manufacturing  process,
but  instead  rely  on  the  collective  experience  of  our  employees  in  the
manufacturing   process  to  ensure  we  continuously  evaluate  and  adopt  new
technologies in our industry. Although we are not dependent on any one employee,
if a significant number of our employees  involved in our manufacturing  process
were to leave our  employment  and we were not able to replace these people with
new employees with comparable  experience,  our manufacturing process may suffer
as we may be unable to keep up with innovations in the industry. As a result, we
may not be able to continue to compete effectively.

We may be exposed to intellectual property infringement claims by third parties,
which  could be  costly to  defend,  could  divert  management's  attention  and
resources and, if successful, could result in liability.

We could be subject to legal proceedings and claims for alleged  infringement by
us of third party proprietary rights, such as patents,  from time to time in the
ordinary  course of  business.  Although  we are not  aware of any  infringement
proceedings   or  claims   against  it,  any  claims   relating  to  an  alleged
infringement,  even if not  meritorious,  could result in costly  litigation and
divert management's attention and resources.

Our  business  may  suffer  if any of our  key  senior  executives  discontinues
employment  with us or if we are unable to recruit  and  retain  highly  skilled
engineering and sales staff.

Our  future  success  depends  to a  large  extent  on the  services  of our key
managerial  employees,  we may not be able to retain our executive  officers and
key personnel or attract  additional  qualified  management  in the future.  Our
business  also depends on our  continuing  ability to recruit,  train and retain
highly  qualified  employees,  particularly  engineering and sales and marketing
personnel.  The competition for these employees is intense and the loss of these
employees could harm our business.  In addition,  it may be difficult and costly
for us to retain hourly skilled employees.  Further, our ability to successfully
integrate  acquired  companies  depends  in part on our  ability  to retain  key
management and existing employees at the time of the acquisition.

Our management team has only recently  commenced  working together as a combined
unit, which may make it more difficult to conduct and grow our business.

Our management  team has only begun working  together as a combined unit. If our
management team cannot successfully work together, we may not be able to execute
our business strategy successfully or compete effectively. Any failure to manage
our expansion effectively could harm our business.

Products we manufacture may contain design or manufacturing defects, which could
result in reduced demand for our services and liability claims against it.

We  manufacture  products  to our  customers'  specifications,  which are highly
complex and may contain design or  manufacturing  errors or failures despite our
quality  control  and  quality  assurance  efforts.  Defects in the  products we
manufacture,  whether caused by a design,  manufacturing or component failure or
error, may result in delayed shipments, customer dissatisfaction, or a reduction


                                       27
<PAGE>


or  cancellation  of purchase  orders.  If these  defects  occur either in large
quantities or too frequently, our business reputation may be impaired. Since our
products are used in products  that are integral to our  customers'  businesses,
errors, defects or other performance problems could result in financial or other
damages to our  customers,  for which we may be legally  required to  compensate
them.  Although our purchase orders  generally  contain  provisions  designed to
limit our  exposure  to product  liability  claims,  existing  or future laws or
unfavorable  judicial  decisions  could  negate  these  limitation  of liability
provisions.   Product  liability   litigation   against  us,  even  if  it  were
unsuccessful, would be time consuming and costly to defend.

The limited market for our common stock will make their price more volatile.

No active trading  market existed for our common stock prior to the Merger,  and
we cannot assure  potential  investors that a larger market will ever develop or
be maintained. The market for our common stock is likely to be volatile and many
factors may affect the market. These include, for example:

our success, or lack of success, in marketing our products and services;

competition;

governmental regulations; and

fluctuations in operating results.

The stock markets  generally  have  experienced,  and will probably  continue to
experience,  extreme  price and volume  fluctuations,  which have  affected  the
market price of the shares of many small capital  companies.  These fluctuations
have often been  unrelated  to the  companies'  operating  results.  These broad
market fluctuations,  as well as general economic and political conditions,  may
decrease the market price of our' common stock in any market that develops.

Our common stock is considered to be "penny stock".

Our  common  stock may be deemed to be "penny  stock" as that term is defined in
Rule 3a51-1 promulgated under the Exchange Act. Penny stocks are stocks:

with a price of less than $5.00 per share;

that are not traded on a "recognized" national exchange;

whose prices are not quoted on the NASDAQ automated quotation system; or

in issuers with net tangible assets less than $2,000,000 (if the issuer has been
in  continuous  operation  for  at  least  three  years)  or  $5,000,000  (if in
continuous  operation  for less than three years),  or with average  revenues of
less than $6,000,000 for the last three years.

Section 15(g) of the Exchange Act and Rule 15g-2 promulgated  thereunder require
broker-dealers  dealing in penny stocks to provide  potential  investors  with a
document  disclosing  the risks of penny stocks and to obtain a manually  signed
and dated written receipt of the document before  effecting any transaction in a
"penny stock" for the investor's  account. We urge potential investors to obtain
and read this disclosure  carefully before purchasing any shares that are deemed
to be "penny  stock."


                                       28
<PAGE>

Rule 15g-9 promulgated  under the Exchange Act requires  broker-dealers in penny
stocks to approve the account of any  investor for  transactions  in such stocks
before selling any "penny stock" to that investor.  This procedure  requires the
broker-dealer to:

obtain  from the  investor  information  about his or her  financial  situation,
investment experience and investment objectives;

reasonably  determine,  based on that  information,  that  transactions in penny
stocks are suitable for the investor and that the investor has enough  knowledge
and experience to be able to evaluate the risks of "penny stock" transactions;

provide the investor with a written  statement  setting forth the basis on which
the broker-dealer made his or her determination;  and receive a signed and dated
copy of the statement from the investor,  confirming that it accurately reflects
the  investor's  financial  situation,   investment  experience  and  investment
objectives.

Compliance  with  these  requirements  may make it harder for  investors  in our
Common Stock to resell their shares to third  parties.  Accordingly,  our common
stock should only be purchased by investors, who understand that such investment
is a long-term and illiquid investment,  and are capable of and prepared to bear
the risk of holding the common stock for an indefinite period of time.

Forward Looking Statements

The foregoing Plan of Operation contains "forward looking statements" within the
meaning of Rule 175 under the Securities Act of 1933, as amended,  and Rule 3b-6
under the Securities Act of 1934, as amended,  including  statements  regarding,
among other items, the Registrant's business strategies, continued growth in the
Registrant's  markets,  projections,  and anticipated trends in the Registrant's
business and the industry in which it operates.  The words "believe,"  "expect,"
"anticipate," "intends," "forecast," "project," and similar expressions identify
forward-looking statements.  These forward- looking statements are based largely
on the  Registrant's  expectations  and are  subject  to a number  of risks  and
uncertainties that are beyond the Registrant's  control. The Registrant cautions
that these  statements  are further  qualified by  important  factors that could
cause  actual  results to differ  materially  from those in the forward  looking
statements,  including, among others, the following: reduced or lack of increase
in demand for the Registrant's products,  competitive pricing pressures, changes
in the market price of  ingredients  used in the  Registrant's  products and the
level of expenses  incurred in the  Registrant's  operations.  In light of these
risks and  uncertainties,  there can be no  assurance  that the  forward-looking
information  contained in this  document  will in fact  transpire or prove to be
accurate.  The Registrant  disclaims any intent or obligation to update "forward
looking statements."

Item 3.  Controls and Procedures

As required by Rule 13a-15 under the Exchange  Act,  within the 90 days prior to
the filing date of this report,  the Company  carried out an  evaluation  of the
effectiveness of the design and operation of the Company's  disclosure  controls
and  procedures.  This evaluation was carried out under the supervision and with
the participation of the Company's  management  including acting Chief Financial
Officer. Based upon that evaluation and acting Chief Financial Officer concluded
that the Company's disclosure controls and procedures are effective.  There have
been no  significant  changes in the  Company's  internal  controls  or in other


                                       29
<PAGE>


factors that could significantly affect internal controls subsequent to the date
the Company carried out its evaluation.

Disclosure  controls and procedures are controls and other  procedures  that are
designed to ensure that information  required to be disclosed in Company reports
filed or submitted under the Exchange Act is recorded, processed, summarized and
reported  within the time  periods  specified  in the  Securities  and  Exchange
Commission's  rules  and  forms.  Disclosure  controls  and  procedures  include
controls  and  procedures  designed  to ensure that  information  required to be
disclosed in Company  reports  filed under the Exchange Act is  accumulated  and
communicated to management and acting Chief Financial Officer as appropriate, to
allow timely decisions regarding required disclosure.

Critical Accounting Policies

The U.S.  Securities and Exchange  Commission  ("SEC") recently issued Financial
Reporting Release No. 60, "CAUTIONARY ADVICE REGARDING DISCLOSURE ABOUT CRITICAL
ACCOUNTING  POLICIES"  ("FRR  60");   suggesting  companies  provide  additional
disclosure and commentary on their most critical accounting policies. In FRR 60,
the SEC defined the most critical  accounting policies as the ones that are most
important to the  portrayal of a company's  financial  condition  and  operating
results,  and  require  management  to make its most  difficult  and  subjective
judgments,  often as a result of the need to make  estimates of matters that are
inherently  uncertain.  Based on this definition,  our most critical  accounting
policies include: inventory valuation, which affects our cost of sales and gross
margin; and allowance for doubtful, which affects the general and administrative
expenses.  The methods,  estimates and  judgments we use in applying  these most
critical  accounting policies have a significant impact on the results we report
in our consolidated financial statements.


                                       30
<PAGE>


PART II -- OTHER INFORMATION

Item 1. Legal Proceedings.

On  November  21,  2002,  a complaint  was filed by MC Squared in United  States
District Court for the Southern District of New York against us, Humbert Powell,
Chairman of our Board of Directors,  Steven  Francesco,  our ex-Chief  Executive
Officer,  David  Devor,  an officer and Brian  Jedwab,  a member of our Board of
Directors,  alleging  breach of a development  agreement  between us (originally
Essential Reality,  LLC) and MC Squared.  Specifically,  the complaint alleges a
failure by us to provide a design  credit to MC Squared on the packaging for the
P5(TM).  The complaint  seeks  specific  performance  and a recall of all P5(TM)
products  shipped to date without the design credits on the  packaging.  We have
submitted  an answer with  counterclaims  and have made a motion to dismiss this
complaint.  On October 15,  2003 the case was  settled  for  $53,643  payable as
follows:  $3,643  in full  payment  for  royalties  due as of July 30,  2003 and
$50,000  for  "Non-Royalty   Settlement"   payable  in   consecutively   monthly
installments of $2,000 commencing  November 15, 2003. The Company may prepay the
outstanding balance within 4 months and deduct 25% or within 8 months and deduct
20%.

On January  21,  2003 a complaint  was filed by RDA  International,  Inc. in the
Supreme  Court of the State of New York  against us seeking  payment of $203,264
for work, labor and services performed in connection with advertising, marketing
and multimedia programs for the P5(TM). This amount has been accrued at December
31, 2002.

On February 28, 2003, a complaint was filed by Aaron Gavios,  a former  employee
of ours, in The United States  District  Court for the Southern  District of New
York against us,  Humbert  Powell,  Chairman of our Board of Directors and Brian
Jedwab,  a member  of our Board of  Directors,  alleging  breach of a  contract.
Specifically,  the  complaint  alleges  failure to provide  for  severance  pay,
failure to provide stock options and failure to reimburse for  automobile  lease
totaling $120,000, plus interest and legal fees. The Company has accrued $50,000
as of September 30, 2003 for severance to this former employee.

On April 16,  2003,  a  complaint  was filed by Ziff Davis  Media,  Inc.  in the
Supreme Court of the State of New York against the Company (originally, ER, LLC)
seeking payment of $27,443 for print advertising for the P5(TM). On July 3, 2003
the case was settled for $10,000  payable in 4 installments  as follows:  $4,000
due July 10, 2003, and the balance of $6,000 in 3 equal  installments  of $2,000
each payable  August 10,  September 10, and October 10, 2003. The full amount is
included in accounts  payable and accrued  expenses at September  30, 2003 as no
payments have been made.

On October  10,  2003 a  complaint  was filed by the Future  Network  USA f/k/a/
Imagine Media Inc in the Supreme  Court of the State of New York,  County of New
York against Essential Reality, LLC seeking payment of $33,405 plus interest and
legal  fees for  advertising  in one of their  magazines.  The  full  amount  is
included in accounts  payable and accrued  expenses at September  30, 2003 as no
payments have been made.

On  December  4, 2003 a complaint  was filed by the CIT  Communications  Finance
Corporation d/b/a/ Avaya Financial Services in the Supreme Court of the State of
New York, County of New York against Essential  Reality,  Inc seeking payment of
$38,084 plus  interest and legal fees for default in paying the Phone  Equipment
Lease Agreement dated January 7, 2002.



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<PAGE>


On January 26, 2004 a compliant was filed by Empire Inter - Freight Corp. in the
Civil  Court of the City of New  York,  County  of New  York  against  Essential
Reality,  Inc.  seeking  payment of  $12,419  plus  interest  and legal fees for
default in paying for freight  services in December 19, 2002. The full amount is
included in accounts  payable and accrued  expenses at September  30, 2003 as no
payments have been made.

We believe  we have  valid  defenses  to these  claims and intend to  vigorously
defend ourselves; however, there can be no assurance that we will be successful.
The costs  associated  with these  litigations,  including  the time required to
defend  ourselves,  as well as the  potential  cost  should  there be an adverse
judgment  against  us,  may have a  material  adverse  effect  on our  financial
condition and results of operation.


Item 2. Changes in Securities.

On March 10,  2003,  the Company  entered  into an  Investment  banking/Advisory
Agreement with First Securities USA, Inc. through its SBI USA division  engaging
SBI as exclusive  advisor and agreed to pay the Investment  Banker a retainer of
25,000 shares of common stock of the Company.

On March 12, 2003,  the Company sold 100,000 shares of common stock to a private
investor for $1.00 per share totaling $100,000.


Item 3.  Defaults Upon Senior Securities.

The Company has defaulted in payments of the  principal and accrued  interest on
notes payable totaling $1,717,070 issued as result of the Recapitalization  with
"JPAL" and  additional  notes  payable  totaling  $180,500  issued  during 2003.
Secured convertible  debentures totaling $1,000,000 issued with 8% Secured Notes
are also in default.

The Company has requested a 90-day extension for all provisions  relating to the
mandatory prepayments.


Item 4. Submission of Matters to Vote of Security Holders.

Not applicable.

Item 5. Other Information.

On January 9, 2003,  Stanley  Friedman,  Vice  president  of  Manufacturing  was
terminated.  The Company  will pay  severance  to Mr.  Friedman in the amount of
$37,500.  The payment is  contingent  upon the Company  obtaining one million in
financing  excluding  bridge  loans by June 30,  2003.  The  Company  executed a
confession of judgment to be filed if the severance  payment is not made by June
30, 2003. No payment has been made to date. In addition,  Mr. Friedman has until
January 9, 2004 to exercise  stock  options  with an exercise  price of $.75 per
share for 85,666  shares of the  Company's  common  stock,  which  have  already
vested. If he fails to exercise, the options will be forfeited. The Company paid
the first months Cobra for January 2003.



                                       32
<PAGE>


On January 10, 2003, Aaron Gavios,  Vice president of Sales was terminated.  The
Company  agreed to pay  severance  to Mr.  Gavios in the amount of $50,000.  The
payment  is to be  paid  in  equal  installments  contingent  upon  the  Company
obtaining three million in financing  excluding  bridge loans. In the event that
the company  fails to make any  payments  after  receiving  financing,  then the
unpaid  severance  shall become  immediately due and payable.  In addition,  Mr.
Gavios has until January 10, 2004 to exercise stock options for 43,000 shares of
the  Company's  common  stock with an  exercise  of $1.04 per share,  which have
already  vested.  If he fails to exercise,  the options will be  forfeited.  The
contract was not signed and is in litigation.

On January 10, 2003 Rubin  Levine,  President  and Chief  Operating  officer was
terminated.  No severance  is due and he has until  January 10, 2004 to exercise
stock options with an exercise price of $0.80 per share for 80,400 shares of the
Company's  common stock,  which has already vested.  If he fails to exercise the
options will be forfeited.

On February 6, 2003 Steven T. Francesco chief executive officer, was terminated.
The Company will pay  severance to Mr.  Francesco in the amount of $41,010.  The
payment is contingent upon the Company obtaining  financing in the amount of two
million  dollars  excluding  bridge  loans.  The Company paid for the  insurance
coverage  for two months  and issued a  five-year  warrant to  purchase  250,000
shares  of the  Company's  common  stock at an  exercise  price of $.75 with Mr.
Francesco.  It is the intent of the  Company  to enter into a written  agreement
with Mr. Francesco in the near future.

On February 24, 2003,  Richard Rubin, Vice president of Product  Development was
terminated.  The  Company  will pay  severance  to Mr.  Rubin in the  amount  of
$47,500.  The payment is contingent upon the Company obtaining  financing on the
amount of two million dollars not including bridge loans. In addition, Mr. Rubin
has until  February 24, 2005 to exercise stock options with an exercise price of
$.80 per share for  33,000  shares of the  Company's  common  stock  which  have
already vested. If he fails to exercise, the options will be forfeited.

On April 7, 2003, Martin Currie, Vice President of marketing was terminated.  As
noted in the employment agreement,  Mr. Currie is eligible to receive $25,000 as
severance.  In addition,  Mr.  Currie has until April 7, 2004 to exercise  stock
options  with an  exercise  price of $0.90 per share  for  20,000  shares of the
Company's common stock, which have already vested. If he fails to exercise,  the
options will be forfeited. No agreement has been signed to date.

On July 31,  2003,  the Company  settled  with a former  consultant  for $20,000
payable as follows: $5,000 payable no later than August 30, 2003, $5,000 payable
no later than  December  12,  2003 and the final  payment of $10,000  payable no
later than January 30, 2004.

February 6, 2004 - The Company  announced  that it has  executed a binding  term
sheet,  which  sets forth the  preliminary  terms and  conditions  of a proposed
merger  transaction  between  Essential  and  AllianceCorner  Distributors  Inc.
("Alliance"). This Term Sheet supersedes and replaces the Letter of Intent dated
November 6, 2003. As proposed, the shareholders of Alliance would exchange their
shares of capital stock in Alliance for shares of common stock of Essential.

The  consummation  of the  transaction  is  contingent  on a number of  factors,
including but not limited to, the  completion of due diligence and the execution
of a definitive  agreement.  There can be no  assurance  that the merger will be
consummated  or, if  consummated,  that it will be  consummated on the terms set
forth in the Term Sheet.
On November 20, 2003 $225,000 was  deposited in the escrow  account with Counsel
to  Alliance.  Alliance  shall be entitled to draw on such funds to pay expenses
for accounting, legal and other expenses related to the merger.


                                       33
<PAGE>


If any party for any reason  terminates the  transaction,  Alliance shall direct
the escrow agent to release to Essential Reality any remaining balance.

Alliance  shall refund to Essential  Reality any portion of the escrow  released
from escrow to pay expenses if before December 31, 2003 Alliance  withdraws form
the transaction due to any non-material adverse changes.

Alliance shall also refund to Essential Reality any portion of the $225,000 that
was released form escrow if both the following conditions have occurred:

         After December 31, 2003 Alliance has withdrawn from the transaction due
         to any non-material adverse changes, and

         Essential  reality  has  made  securely  funded  arrangements  to  fund
         Expenses that exceed the $225,000 deposited in escrow.

Pursuant to the  Binding  Term Sheet the Company  signed an  Investment  Banking
Agreement with Sunrise Securities Corp. a registered broker/dealer with National
Association of Securities  Dealers.  Sunrise will use its "best effort" to raise
the money  provided  for in the PPO a minimum of  $2,500,000  million  under the
terms and  conditions  of the PPO.  We will pay the  Investment  Banker  $25,000
nonrefundable retainer fee and financing fees equal to 10% of the gross proceeds
of such financing  payable to Sunrise in cash and warrants  issued to Sunrise to
purchase on the same terms 10% of the securities in such financing. Upon closing
the of each Financing,  the company shall pay Sunrise a financing fee payable in
a form at the sole  election  of  Sunrise of either (i) cash fee equal to 10% of
the gross  proceeds  or (ii) the  Company  shall  issue the  number of shares of
Common  Stock  equal to 11% of the  aggregate  number  of fully  diluted  and/or
converted shares of Common Stock and/or Common Stock equivalents  (including but
not limited to Units)  purchased by  Investors.  In addition,  the Company shall
issue warrants to purchase Common Stock equal to 10% of the aggregate  number of
the fully  diluted and or  converted  shares of Common  Stock  equivalents.  The
warrants  shall be purchased  for a nominal sum and shall be  exercisable  for a
period  five  years from the date of closing  with an  exercise  price per share
equal to the effective per share price paid by the Investors for the Securities.
In the event  the  agreement  is not  renewed  or  terminated,  Sunrise  will be
entitled to a full fee for which  discussions  were conducted during the term of
the agreement by the Company or by Sunrise within twelve months.  In addition to
the fees,  Sunrise will be reimbursed for all reasonable fees and  disbursements
of  Sunrise  outside  counsel  and  Sunrise  travel  and out of pocket  expenses
associated  with the  financing  up to $25,000  without  Company  approval.  The
Company shall also  reimburse the  reasonable  fees and  disbursements  of small
business  investment  counsel, if any, incurred in connection with Financing not
to exceed 1% of the SBIC's allocation in such financing.

The Company has a signed retainer agreement with Gottlieb & Partners, LLP as its
special  counsel  for  drafting  and filing all  required  regulatory  documents
pursuant to the terms and  conditions  set forth in the Binding Term Sheet dated
January  2004.  The Company  agrees to pay a flat fee for legal  services in the
amount of $60,000 to be payable at the  closing  from the escrow of the  Private
Placement Offering.

The Company  has  retained  Jackson  Steinem,  Inc.  for  non-legal  services in
connection with the Company's proposed reorganization  transaction.  The Company
agrees to deliver after the closing 30,000 shares of the Company's  Common Stock
as compensation for services rendered.



                                       34
<PAGE>


Item 6. Exhibits and Reports on Form 10-QSB.

(a) Exhibits.

      99.1 CEO and Acting CFO Certification  Pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
            .
(b) Reports on Form 10-QSB.

                                   SIGNATURES

In accordance with the requirements of the Securities  Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

                                  Essential Reality, Inc., a Nevada corporation
                                     (Registrant)

Date: April 21, 2004

                                   By:  /s/ John Gentile,
                                   ----------------------------------
                                   Its: Interim Officer
                                        Chief Operating officer and Director
                                        (Principal Executive Officer)


CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In  connection  with the  Quarterly  Report  of  Essential  Reality,  Inc.  (the
"Company") on Form 10-Q for the period ended  September,  2003 as filed with the
Securities  and  Exchange  Commission  on the date  hereof (the  "Report"),  the
undersigned, in the capacities and on the date indicated below, hereby certifies
pursuant to 18 U.S.C.  Section 1350,  as adopted  pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that to his knowledge:  1. The Report fully complies
with the  requirements of Section 13(a) or 15(d) of the Securities  Exchange Act
of 1934; and 2. The information  contained in the Report fairly presents, in all
material  respects,  the  financial  condition  and results of  operation of the
Company.

Dated:  April 21, 2004          By: /s/ John Gentile
                                  ---------------------------------------------
                                  John Gentile, Interim President,
                                  Chief Operating Officer and Director



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